The challenging insurance market conditions of recent years have eased, giving way to a more adaptable market. Many insurers are now profitable and aiming to grow their businesses while maintaining their profitability. The main exception to this is motor fleet insurance, which is still subject to rate increases, albeit these are also moderating.
Inflation has slowed, insurance rate increases are less frequent and insurers have shifted their focus from remediating their books to retaining premiums. While underwriting discipline remains evident, many insurers also harbour ambitious growth targets. This has led to increased competition as many actively pursue new business.
ESG remains a focus for insurers to differentiate risk profiles and direct their capacity.
In this insurance market update, we discuss:
Businesses in the drinks sector can generally expect their insurance renewals to be offered at flat rates, or with slight reductions. Effective negotiations can secure double-digit reductions with incumbent insurers for attractive risks. Similarly, lead insurers for primary layers are now more likely to offer flat renewal rates to food manufacturing businesses, with potential reductions of 10% or more for some food and beverage organisations well-managed risks.
There is also an opportunity to lower overall premium rates by leveraging increased capacity from both new and existing food markets, restructuring layers of cover, and adjusting capacity proportions among participating insurers. It's an opportune time to review the loss limit structure to ensure optimal engagement of each insurer according to their rating and reinsurance strategy.
The market is increasingly competitive for lead lines. For well-managed risks, potentially significant premium reductions may be possible by switching lead insurers. Quality of underwriting, clear risk management information and a defined placement strategy remain key to successful outcomes. Early engagement with current and potential insurers is crucial, as is demonstrating improvements evidenced by risk recommendations.
Stock throughput cover under a marine cargo policy has once again become an attractive option, providing cradle-to-grave cover for stock on a selling price basis, enabling a restructure of the PDBI cover and potentially leading to overall cost reduction.
Despite moderated inflationary pressures on insured sums, insurers continue to be focused on ensuring declared values accurately reflect building cost inflation. Businesses must use a robust valuation methodology to avoid potential claim issues and restrictive policy terms.
Given the significant premium spend on PDBI cover, clients are exploring cost mitigation strategies, such as increasing deductibles or foregoing capacity they view as overpriced. We are exploring a variety of options to meet client needs, including alternative programme designs, tailored coverage limits and sub-limits and the use of captives for larger organisations.
A detailed business interruption review can be crucial to challenging and ensuring confidence in the adequacy of the policy loss limit. Understanding your organisation’s recovery ability can lead to more accurate loss estimations and recovery times, potentially improving the premium rating for the business interruption component of the cover.
The appetite for food and drink risks in the market has further improved over the past six months, contingent upon positive claims performance and evidence of high-quality risk management standards.
We are now observing sometimes significant rating reductions of 20% or more.
Risk management information supporting claims performance is crucial in achieving optimal results.
We anticipate market conditions to continue to improve throughout the remainder of 2024 and into 2025. Accounts that perform within expectations and are supported by positive risk management narratives may be able to achieve double-digit reductions.
We continue to see insurers requiring rate increases on motor policies—even for well-performing risks—due to claims inflation affecting both injury and damage settlements, as well as increases in reinsurance costs.
Insurers have indicated a need for rate increases of around 8% to 15% across their portfolios in 2024. However, a strong appetite for new business remains and is likely to moderate these rate increases. Across our portfolio, we have recorded an average rate increase of 5% to 8%, during 2024.
Long term agreements (LTAs) vary case by case, with provisions for 'flat' rates becoming increasingly rare, linked to the inflation factors mentioned.
Bursaries are still available but must be agreed in advance with insurers. A well-reasoned argument demonstrating how proposed measures will benefit future claims experience is necessary. Insurers assess these on a case-by-case basis and may sometimes offer up to a 50% as opposed to funding 100% of the improvement measure.
Most insurers are raising own damage excesses to at least £500.
Repair costs and times remain problematic, with average repair costs having risen over the last two years. The increasing number of electric vehicles, which have repair costs approximately 50% higher than those for petrol or diesel vehicles, contributes to the overall rise in claims costs. Challenges in obtaining parts due to global supply chain issues, along with repair network challenges, are exacerbating the situation. Additionally, the cost of credit hire for replacement vehicles has increased due to repair delays, further elevating claims costs.
Efficient maintenance of MID records is essential as it now proving more challenging to refute a claim for a vehicle incorrectly listed on the MID, which may negatively impact claims experience.
Insurance market conditions within the London market in the food and beverage sector remain highly competitive, further intensified by the entry of Tokio Marine HCC in June this year. This addition follows several others over the past 18 months. The competition within the London market has been exacerbated by a strengthening of the US domestic market, which has limited the flow of new business from US clients and increased competition for opportunities in the UK and international markets
The broadening of coverage by US carriers, including coverage for issues such as mould and rancidity, has been mirrored by some UK carriers. Currently, these coverage enhancements are applied on a sub-limited basis. We expect this trend to continue over the next 12 months, with sub-limits being extended further to attract new business. We understand this additional coverage will be considered on a case-by-case basis and is unlikely to be uniformly applied.
The frequency of product recalls remain consistent with levels experienced in 2023; however, the severity of losses is on the rise due to inflationary pressures in transport, labour, storage and raw material costs. These costs are typically passed on to the consumer to minimise impact on manufacturers but constitute a significant portion of any recall claim. We recommend all organisations continually review their policy retentions and limits to ensure they accurately reflect this increasing exposure.
The Food and Drug Administration (FDA) has predicted an increase in recalls in 2024 compared to 2023 across the UK, EU and Australia. Overall recall numbers have returned to pre-pandemic levels, with Salmonella now the leading microbiological cause, surpassing Listeria, which was the primary cause in 2023. This increase in product recalls has been exacerbated by auditors gaining more access to manufacturing facilities post-pandemic and the industry's reliance on less experienced, temporary staff filling vacancies.
A significant trend is the rise in allergen-related labelling errors, now the leading cause of recalls in the UK, accounting for 23% of all recall events recorded by the Food Standards Agency (FSA). This follows more stringent requirements imposed by regulators.
Prepared dishes, pasta and noodles are the most frequently recalled products across the UK. Meat products, nuts and seeds, non-alcoholic beverages, and fruit and vegetables have all experienced notable increases in recall numbers compared to 2023.
After significant rate reductions throughout 2023 and early 2024, median rates are no longer decreasing as sharply as they have over the past three years, aligning with our expectations given the substantial reductions already observed.
Nevertheless, our initial data for H1 2024 shows that 72% of our clients that renewed in the second quarter experienced a decrease or stabilization in their primary rates. In excess layers, 82% of our clients saw their rates decrease or remain unchanged. Overall, median rates continue to trend downward, a trend we attribute to ongoing competition among insurers. We have encountered various instances where insurers have declined certain accounts, either due to excessively low rates or because some risks fall outside their risk appetite. However, it is generally possible to find alternative insurers, ensuring that rate reductions remain prevalent.
While new entrants have been minimal over the last year, there has been a meaningful new entrant that had a broad appetite, experienced underwriters and was looking to be commercial where possible. This has contributed to the pressure on incumbent markets.
We are also observing increased interest in LTAs from some of our clients and underwriters. This could be a sign of heightened competition in the market, with insurers making attractive offers to secure business and prevent re-marketing. It may also indicate some insureds wish to lock in soft market rates while they can.
Policy terms continue to reflect the softening market, with insurers increasingly willing to underwrite business on 'any one claim' limits, as well as offer other bespoke coverage solutions.
While 2023 saw a small increase in notifications compared to 2022, the numbers remained lower than those recorded between 2015 and 2021. Based on the performance so far in 2024, if annualised, the number of notifications this year may end up being the lowest in the past decade. However, we caution this could easily change as the year progresses. Looking forward, we expect rates to continue to flatten through the remainder of 2024 and into 2025.
Our biggest Directors’ and Officers’ Survey Report 2024 to date (in collaboration with international law firm, Clyde & Co LLP) has been published, with responses from more than 900 directors, officers and risk managers from more than 50 countries around the world. The report is accompanied by a series of articles that explore some of the details, including regional overviews and discussions on specific topics such as ESG and insolvency.
In H1 2024, there was intense competition among insurers to deploy capacity across both primary and excess layers. This was advantageous for both existing and new cyber insurance buyers, providing them with a variety of options to purchase new policy coverage and/or limits.
During H1 2024, double-digit premium reductions were often available; however, this was not the default position and was influenced by several factors, particularly the existing premium level.
There were exceptions to these trends, with some insurers (including incumbents) walking away from business due to concerns about price adequacy, given the significant year-on-year pricing reductions.
In terms of self-insured retentions, insurers are often willing to offer alternative lower options or structures, particularly where this mitigates the level of premium reduction by trading a lower retention for a more modest premium reduction.
Overall, the cyber insurance market during H1 2024 was very favourable for buyers, making it an attractive time for new cyber insurance buyers to take advantage of these conditions.
Policy coverage for system failure as a loss trigger has come under sharp focus following the Microsoft/CrowdStrike event in July 2024, which Microsoft believes has affected 8.5 million devices globally. We would suggest reading the WTW alert on the event.
This incident serves as a stark reminder that while cyber risks can be mitigated, they often cannot be eliminated entirely. It underscores the importance of combining risk treatment with the transfer of the inevitable residual cyber risks that a business faces.
Coverage for supply chain business interruption risk has remained a key area of focus for our clients during H1 2024, against a backdrop of such supply chain events continuing to surface in the public domain.
During H1, WTW had a new war exclusion approved by the Lloyd’s Market Association (LMA), which has already provided a meaningful new option for our clients worldwide due to its structure and language.
Intersection of cyber risks and the responsibilities of directors and officers is critical. Our 2024 Cyber In Focus report, which collected responses from directors and risk managers in 52 countries around the world, explores the nuances of cyber risk governance, incident response and cyber insurance, offering insights to help businesses navigate this complex terrain.
Cargo insurers in the UK returned to profitability for the 2023 account year. Recent reporting for Lloyd’s Syndicates suggests loss ratios of approximately 90%, which we believe is reflective of the wider cargo insurance market.
These results emerged following several years of:
The positive results indicate that the previous upward pressure on pricing has eased, a trend we expect to continue for the remainder of 2024 and into 2025. This trend is also aided by new and additional capacity entering the cargo insurance market.
However, despite these positive results, concerns persist around the following:
While improved profitability and increased competition may ease pricing pressures, it does not mean insurers will offer price decreases across their entire portfolio. Cold store risks, for instance, are less attractive to insurers.
However, there may be room for price negotiation on 'attractive' accounts—those with significant premiums, good loss records and low natural catastrophe exposure. Limited price reductions could be achievable in these cases.
Certain business locations, particularly those exposed to natural catastrophes, may still see price increases where insurers believe they have not yet achieved adequate pricing.
In recent years, insurers have scaled back or removed certain coverages they deemed too broad in scope or limit. While they may not be eager to reinstate these coverages, they might consider variations or reintroduce them for an additional premium.
The primary reason for coverage restrictions now is geopolitical situations. Previously, we saw exclusions related to Ukraine, Russia and Belarus, often reflecting exclusions imposed on insurers by reinsurers. The current geopolitical situation in the Middle East has led some markets to apply exclusions for war and strike risks within Israel, Gaza, and the surrounding area, including the Red Sea.
The market hardening that began in 2023 has continued apaced in 2024.
This trend is expected to persist, as global geopolitical volatility increases and financial environments become more uncertain. Consequently, we expect the protective element offered by trade credit insurance will be increasingly sought.
The impact of inflation and higher interest rates has been a concern for some time and has likely had detrimental effects on the financial health of many businesses, despite recent signs of inflation easing. The ongoing profitability squeeze will continue to affect liquidity and solvency. Moreover, the availability and increased cost of financing, due to higher-than-anticipated interest rates, will impact all businesses, particularly those with higher debt burdens such as 'zombie companies,' which may struggle to refinance.
Despite these challenges, trade credit insurers maintain a healthy appetite for new business in the food and drink sector, especially where the impacts of inflation, higher interest rates, and energy price volatility can be passed on to customers. Insurer interest in certain heavily insured names within the wholesaler and grocer segment is growing, following capacity issues since 2022. Top-up solutions help to address coverage gaps, meeting customer exposure requirements driven by new business or inflationary increases for existing customers. There are now many insurers in the trade credit market offering this cover and it is becoming increasingly popular.
Policy structures that offer non-cancellable credit limits and greater policyholder discretion, such as excess of loss solutions, continue to gain wider appeal.
The use of trade credit insurance as a tool for growth and competitive advantage is also becoming more popular and better understood. It enables organisations to expand into sectors and territories they might not have considered without insurance. Additionally, using trade credit insurance to secure improved funding terms by leveraging a company's trade receivables has been a main driver of growth in this market. This trend persists as companies and banks explore the product to protect and enhance their financing options.
Supply chain finance is a method of improving a company's cash flow. It offers early settlement options based on the purchasing company's financial strength rather than the supplier's, thereby providing the supplier with access to better terms than they could have obtained independently.
Few industries rely more heavily on natural resources than the food, beverage and agriculture sectors. With tightening environmental regulations and growing public concern over pollution and biodiversity loss, there is an increasing focus on how these sectors use resources, from land and animals to water.
In addition to the risks posed by chemical processes, refrigerants, and fuel storage, natural products such as milk can cause serious damage if they leak in large quantities. Examples of incidents that have caused harm include:
The global environmental impairment liability (EIL) market has seen a marginal increase in rates over the past twelve months, with insurers generally seeking increases of between 3% and 6% on renewals. The market has remained stable and appetite remains strong in this sector. However, the increase in rates on other lines has meant that the take-up of EIL, where cover is not compulsory or contractually required, has been low. The market continues to focus on Perfluoroalkyl and Polyfluoroalkyl Substances (PFAS) / Perfluorooctanoic Acid (PFOA) risks and exclusions are tightening as the market grapples with this complex class of synthetic chemicals.
Insurance cover may be affected where the potential for PFAS contamination is identified. More insurers are excluding PFAS contamination as a standard position following large payouts around the world. Some insurers may not specifically exclude PFAS, but providing accurate information is key to obtaining cover.
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Rating trends are for guidance only and vary depending on risk profile and individual circumstances. The percentages have been presented as rounded figures for ease.
